Archives for July 2012

The Russian Double Tax Treaty with Cyprus

The 1998 treaty for the avoidance of double taxation between Cyprus and Russia was completed with a Protocol to the Agreement for the avoidance of double taxation between Russia and Cyprus, ratified by the Russian “Duma” on 15 February 15, 2012.

The Protocol is expected to be signed, as last step in order to be enforceable, by the Russian President, supposedly until the end of 2012 in order to have effect starting with January 1, 2013 for some provisions and others from 2017. Upon its ratification, Cyprus will be removed from the Russian “black list” of offshore jurisdictions.

This will allow Russian companies to qualify for the Russian dividend participation exemption if dividends are paid by Russian companies to Cyprus Holdings, thus facilitating the investments into Russia as well.

Loan and Interest for the Loan Tax Laws Improved in Cyprus to Reinforce the Cyprus Holding Facilities

In March 2012, the Cyprus House of Representatives changed the interest tax legislation, thus facilitating the use of the loan agreements within a tax group and the deductibility of the interest in some cases.

1.   After March 2012, any loans between a Cyprus mother company and its daughter company in which it owned 100 % shares may be given without any interest, unlike until recently, when it had to bear a market rate interest. 

2.   In case of direct or indirect acquisition of 100% shares in a subsidiary the interest for the received loans for such an acquisition are now deductable, thus reinforcing the Cyprus jurisdiction as the most attractive for “Holding” services.  In case that the subsidiary own some assets, which may considered not to be necessary for the business activity of the company, the possibility to deduct the interest will be in a percent, corresponding to the assets which are actually used in the business of the said company.

New Group Relief Rules in Cyprus Law

In May 2012, the Cyprus House of Representatives introduced new facilities for the Group relief in Cyprus.

Group relief is the deduction from the profits of one company of the losses of another company from the same tax group.

 A tax group exists when a company is incorporated by its mother company with minimum of 75% voting shares, directly or indirectly, and beneficially entitled, directly or indirectly, to at least 75% of the income and 75% of the assets in case of share transfer or any type of closing of the company.

Until recently, the Group relief could be applied only if all the tax resident companies were from the same tax group for the entire financial year for which was required the tax relief.

Now, for any moment the company becomes member of a tax group, it may apply the for the tax relief.

The Cyprus Royalty Company

Recently (in May 2012 but with effect as from the January 1, 2012) the Cyprus House of Representatives changed the royalty taxation in Cyprus, making it the most profitable jurisdiction for registration and management of the intellectual property.

The effective tax rate applicable on the Cyprus Royalty Company will not be higher than a maximum of 2% on its received royalties or on the transfer of the intellectual property in future.

It is possible reduce even more the 2 % effective rate by the deduction of the above capital allowances.

1. The 2 % resulting rate for licensing intellectual property.

The law changes created special incentives for the Cyprus companies, owning intellectual property – trademarks, patents, copyright, which generates income.

Until now, for these companies the income from intellectual property was taxes with the normal rate of 10% profit tax on the net profits.

The changes introduced and exempt from the property tax, excluding 80 % of the profit resulting from royalties.

On the rest of 20 % of the royalty income, the normal will be applied.

In order to determine the profit acquired through license of intellectual property, the law allows to deduction from the royalty income all expenses incurred for the production, acquisition or development of royalty income, including capital allowances for acquisitions and development of intellectual property.

2.  Further incentives, allowing the reduction of the 2 % using new provisions related to capital allowances for acquisition and development of such rights.

In addition to the above-mentioned exemption of 80 % from the profit tax, the Cyprus Royalty company will be able to deduct the expenses made with the registration, transfer of ownership and development of such rights in the first five years of its use.

The company will be able to deduct the 20 % of capital allowances starting from the first year of the intellectual property use, up to the 5th year from its acquisition.

3.  The third important incentive is related to the further future transfer of the intellectual property.

Either the intellectual property will be transferred with the same profit tax of 2 % or the company’s shares may be directly transferred, without any involved costs on the intellectual property of the company, irrespective to its value, but only with the very small Registrar of Companies notification costs.

In order to be able to register or transfer the intellectual property to your Cyprus company, you may use providers of such services, such as intellektus.com.

For the setting up and management of the intellectual property on the Cyprus Royalty company, you may use our specialized in intellectual property directors, officially licensed by international authorities as patent attorneys, in order to provide substance to this companies. To acquire these services, write to office@fiduciara.com or find more information on our website.